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Yes, solidarity is the key but perhaps the construction of Europe should be reconsidered. No longer based on the Treaty of Maastricht which considers primarely the "free" market and is resulting rapidly in the Europe of the Poor, but on the Treaty of Rome whose prime intentions were the continuous improvement of living standards and employment, solidarity and real democracy. It is still possible through solidarity to save not just the euro but also the European project.

sir, you write " the independent US and European central banks performed poorely"; first: what are governments for?; second: for the moment we are witnessing a most strange situation: governements as fiscal authority, are introducing fiscal austerity ( cutting expenses and increasing taxes ) to restrain bugdet deficits, while other government institutions , central banks, to respect their legal goal being to favor a strong economy at stable prices , are injecting a massif amount of liquidities at an extremely low price into the economic system to stimulate economic growth. Who is going to win the contest?

The massif amounts of liquidity are here no matter what central bankers do.

The idea that low interest rates are caused by QE, is wrong. QE's are designed to change the risk perception and increase the rates, because we are living in times of strong risk aversion (liquidity preference) and that’s one of the few things a central bank can do in a liquidity trap situation.

You are very right in spotting the paradox, though, fiscal austerity and monetary loosening it’s probably one of the most stupid ideas ever. New Deal worked because monetary loosening was used to fund fiscal stimulus, and that’s how we should be doing right now

The fractional reserve system that requires a "deposit insurance" (which needs to be common in the case of the euro), is fundamentally problematic and only appropriate for periods of economic boom (i.e., growth), or parts of the world that can experience such growth at the expense of other parts. The expectation of perpetual growth, which requires perpetual increase of the money supply, which in turn requires perpetual increase of debt (because virtually all money is created as debt), is an illusion and a largely unstable system.

Perpetual growth cannot come from exploitation of increasing amounts of resources, because resources have limited quantities in the real world. The only place that perpetual growth would seem to be feasible, is the exploitation of perpetually deeper knowledge and this would be the, so called, knowledge economy. But, even in the field of exploiting the manufacturing of computer chips (which can fit exponentially increasing amounts of computational resources in fixed space), providing performance increases has become increasingly complex, actually stopping the course of delivering faster chips for any market. Generally, after some point, increasing resources cannot provide much more than the sum of the parts and, in fact, not even the sum of further increasing the parts is attainable, other than by diminishing the additive efficiency of these parts!

On the flip side, the fractional reserve system requires perpetual growth of the money supply and is ***very bad*** at managing deleveraging or even a stable size of money supply and associated debt, causing recessions. A system based on "deposit insurance", results in bad incentives for the banks and risky but high performing loans, which they cannot back in the inescapable bust that will come. At this point, not only the taxpayer has to bailout depositors (the "deposit insurance" may easily not suffice) and this way socialize the losses for privately taken risk. In addition, the losses, in the parts of the banking system that cannot be covered by the "deposit insurance", result in layoffs, dysfunctional banks that do not lend, further bailouts and public indebtedness, decreased consumption and, generally, recession or even depression. "The debt deflation theory of great depressions" (Irving Fisher, 1933) takes place in a larger or smaller scale.
[Read a very colorful presentation of the issue with deposit insurance here: http://www.positivemoney.org/how-money-works/advanced/how-do-banks-become-insolvent/#insurance]

The latter part of the financial system (the one that cannot be covered by "deposit insurance", but still has to be bailed out), which you believe in regulating (as I understand from other writings of yours), will not be tolerated anymore to exist at the expense of the poorer part of society. The costs are too great.

Instead of persisting in the dysfunctional fractional reserve system and, effectively, proposing broader socialization of banker losses, please get down to work and propose something better for the 21st century, that is not so inextricably tied to a notion of growth. The time of the growth doctrine is over and if economists do not rise to the level of the challenge, social initiatives will overthrow the financial system, along with any benefits it could have if it were functional.

Of course the proper response is no country has ever gotten into trouble through austerity. That is because prosperity is always relative to where you have been. Everyone feels prosperous when they are spending & maxing out the debt but there is always a limit to that type of prosperity.

Well, just to name a few. The great depression was a austerity problem and the new depression is also caused by austerity. When you are facing a demand problem austerity only creates problems.

But it’s not just that, you see when you think a bit harder about the nature of savings and spending, you realize that there is no such thing as saved resources. Money has no vale per se, it’s just a bunch of zeros and ones in a computer system, or a pile of gold buried under a mountain. When you realize this simple fact you conclude that austerity only has a role to play in full-employment, not in crises situation, and that it is austerity that causes crises (demand shocks).

I keep hearing about the need for a Central Euro Bond but it is never tied to fiscal enforcement. Euro Bond would only maintain low interest & high interest if the markets believed that they were under control & not subject to default, delays, & restructuring. One uncontrolled, overspending economy can stain the rest of Europe. Without a why to oversee the fiscal policies of sovereign nations a Eurobond will more likely worsen the rates of Germany than reassure the market of the creditability of Greece.

Euro needs to difenrentiate between imported value and internal value, we need to protect to some degrees the different european economies.

VAT is a stupid tax, we need assymetric consequences and to tax the imports within the EU higher then what is produced in the EU countries, if not economies of scale will lead to spacial agglomeration.

Regarding the famous internal devaluation, we need PROOF that lowering wages promotes competitiity, because Germany has higher wages then Spain or Portugal, and its far more competitive...

The main problem for the eurozone is the lack of a federal political power accountable to citizens through a real democratic process while now all the members of the European Commission are technocrats.

After versailes' treaty at the end of WW I, germans were imposed totally
unfair and unbearable conditions. They are now doing the same mistake:
imposing the Euro to southern europe, with deflation and increasing
debt, austerity. No wonder nationalist parties are stronger than ever.
Europe is not a democracy anymore. And if you have to get an imposed
leader, better one that says they care for you than another one, as the
german government, that proposes to take over a couple of your territory
as part of the repayment...

The parallel that Pr. Stiglitz makes to argentina's 2001 crisis is
extremely relevant. Argentina's exchange rate dropped by 40$, that was a
very difficult year.. but then a 14 years growth period at extremely
high growth rate ensued. In Europe, we are 5 years down the crisis and
there is still no recovery in southern europe, only a long agony. I call
criminals those who forced those countries to stay within the Euro zone.
But they had to stay, so the big banks, leeches of our economic system,
could rip them of their last drop of blood.

In Antic times, Romans had a habit of invading foreign lands, killing thousands of their inhabitants and dragging other thousands to their homeland as slaves to work in abysmal conditions.

Today, countries are ruined through clever financial schemes of neocolonialism and after they have literaly no money to conduct business in their home their citizens are given " generous opportunity" to abandon their family, homeland and to move to work to dying countries that caused their downturn ( or to die from hunger at home).

Slavery indeed has reached new level.

Europe is not USA, we don´t share the same language. To try to force people to leave their countries their forefathers shed blood for is receipe for disaster.

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